VA - Subject to - Repairs or Plans & Specs

[Gerry Sauceda]

Sorry - this is my first year with VA so I'm just trying to get clarification. I made notes in my initial training that if a home is still under construction but not at least 90% complete, I would need plans and specs. I assume then I would have to provide the plans and specs and comment in the report and mark subject to P&S. When I search the VA handbook - I can't find the "90%" rule. There is a home that I believe not quite 90% and I completed it subject to P&S. Lender is referencing Chapter 10 and says should be subject to repairs.
I usually respond with a reference, but I only have my training notes. Maybe misquoted the trainer. Is there any credence to this?

 

[Tiffany Gibbons]

Sorry - this is my first year with VA so I'm just trying to get clarification. I made notes in my initial training that if a home is still under construction but not at least 90% complete, I would need plans and specs. I assume then I would have to provide the plans and specs and comment in the report and mark subject to P&S. When I search the VA handbook - I can't find the "90%" rule. There is a home that I believe not quite 90% and I completed it subject to P&S. Lender is referencing Chapter 10 and says should be subject to repairs.
I usually respond with a reference, but I only have my training notes. Maybe misquoted the trainer. Is there any credence to this?

Yes, the lender is correct. Atlanta RLC put out a newsletter to panel members in 2020, you may be under a different RLC.




See below from newsletter-They do make exceptions now and then depending on supply chain issues, deployment, weather related finish items like seed and straw in pouring down rain and the Veteran and the lender can escrow some things until after closing if necessary. I think that 90% thing came from an online class "Appraising for the VA" that is outdated now





I've heard Lenders quote the "90%" so maybe it came from SAR training. I have one I have been waiting for a month for the Builder to get to the "customer preference stage", hangup is site can't be graded until sewer is connected, porch not complete, etc. Inside stuff is mostly done but site grading and exterior concrete is not buyer preference stage yet.

 

[Tim Hicks (Texas)]

Here in Texas, there is no 90% rule. The key words are "buyer preference stage." We cannot do an appraisal "subject to plans and specifications" unless it is ordered as "proposed." If it is ordered as "under construction" or "existing," the home must be completed to buyer preference stage before we can complete the appraisal. Buyer preference stage typically means "carpet, appliances, minor improvements like mirrors and shower glass, light fixtures, landscape, fencing, etc. If the brick is not installed, we cannot do the appraisal until it is completely installed. Lately, we have had delays in concrete drives and glass, so we can typically get away with considering these items "buyer preference" due to supply chain problems.

I remember early in the 2000's, I had a VA order where is was less than 50% complete and I asked for the plans and specs. I was reprimanded because it was not ordered as "proposed" and was told I must wait for the home to reach buyer preference stage or contact the VA have them cancel and order it later in the construction stage.

 

[nicomayonnaise]

Below is a letter I have received directly from VA last year or the year prior for the situation you may find helpful.

"The 1805 is the appraisers Letter of Engagement and establishes the scope of work requested by the lender. When the 1805 is ordered as “existing” this means the appraiser can view the subject is over 1 year since Certificate of Occupancy issued or previously occupied (100% complete is assumed since the Certificate of Occupancy has been issued). This is not an “existing” order, so it was ordered incorrectly.

If the Lender has ordered the appraisal as Existing Construction or New Construction and the Appraiser finds the Property to be Proposed or Under Construction with more than customer preference items remaining, the appraiser must immediately stop and notify the Lender before proceeding.

The Lender must then decide if the appraisal is to proceed.

If the appraisal is to proceed, the Lender must correct the 1805 which requires the case to be cancelled to allow for a new 1805 appraisal order.

The Denver RLC must be contacted to cancel the previous case per VA/RLC Guidelines.

The Denver RLC may facilitate assigning the new VA case to the same appraiser as would be appropriate.

Regardless of appraiser selection for the new VA case, the appraiser for the previous case is allowed to charge for work completed and/or a trip fee for the previous case.. The Veteran must not be charged for the work completed under the canceled case.

The Lender must upload the required Construction Exhibits to the new VA Case in WebLGY before the appraiser can continue.

If the Appraiser has obtained Construction Exhibits during their normal course of business, the Appraiser may forward these documents to the Lender to allow the Lender must upload them to WebLGY.



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Here is some information about Proposed Construction; Under Construction; New construction.

Appraiser/Industry Standard Definitions:

Existing Construction – Property is 100% complete.

Proposed Construction – Before concrete is poured.

Under Construction – After concrete is poured, but before the Property is 100% complete.

VA Handbook Definitions for the 1805:

Existing Construction – Over 1 year since Certificate of Occupancy issued or previously occupied (100% complete is assumed since the Certificate of Occupancy has been issued).

New Construction – Under 1 year since Certificate of Occupancy issued and never occupied, or complete with the exception of “customer preference” items as defined in Chapter 10 Topic 9. c. below.

Proposed Construction – Can be Proposed (before concrete as per industry standard above) or Under Construction (after concrete per industry standard above).

VA definition of Under Construction differs from industry standard due to the VA New Construction definition above which allows for incomplete customer preference items.

VA allows an appraisal to be completed at any stage of construction.

If the Property is Under Construction based on industry standards, but does not meet the VA New Construction definition with only buyer preference items remaining:

The Lender must complete the 1805 indicating Proposed Construction and the Lender must follow the requirements of Chapter 10 Topic 12.

The Lender must upload construction exhibits for Properties that are Under Construction at the time of the case assignment.

The Appraiser must complete the appraisal subject to plans and specs per Chapter 10 Topic 12 c.; however, the appraisal report will be market Under Construction on page 1 of the FNMA Form 1004 URAR or FNMA Form 1025 Small Residential Income, or page 2 of the FNMA Form 1004C Manufactured Home.

The Appraiser must have the Certification of Exhibits as per Chapter 10 Topic 12 b.) included in the report.

If the Property is Under Construction based on industry standards, but does meet the VA New Construction definition with only buyer preference items remaining:

The Lender must complete the 1805 indicating New Construction and does not need to follow the requirements of Chapter 10 Topic 12.

The Appraiser must complete the appraisal subject to repair as per Chapter 11 Topic 18 b.; however, the appraisal report will be market Under Construction on page 1 of the FNMA Form 1004 URAR or FNMA Form 1025 Small Residential Income, or page 2 of the FNMA Form 1004C Manufactured Home.

The Appraiser does not need to have the Certification of Exhibits as per Chapter 10 Topic 12 b.) included in a report.

If the Lender has ordered the appraisal as Existing Construction or New Construction and the Appraiser finds the Property to be Proposed or Under Construction with more than customer preference items remaining, the appraiser must immediately stop and notify the Lender before proceeding.

The Lender must then decide if the appraisal is to proceed.

If the appraisal is to proceed, the Lender must correct the 1805 which requires the case to be cancelled to allow for a new 1805 appraisal order.

The Denver RLC must be contacted to cancel the previous case per VA/RLC Guidelines.

The Denver RLC may facilitate assigning the new VA case to the same appraiser as would be appropriate.

Regardless of appraiser selection for the new VA case, the appraiser for the previous case is allowed to charge for work completed and/or a trip fee for the previous case.. The Veteran must not be charged for the work completed under the canceled case.

The Lender must upload the required Construction Exhibits to the new VA Case in WebLGY before the appraiser can continue.

If the Appraiser has obtained Construction Exhibits during their normal course of business, the Appraiser may forward these documents to the Lender to allow the Lender must upload them to WebLGY.

It must be noted that “customer preference items” are somewhat subjective.

Those items typically considered as customer preference items are:

• kitchen appliances
• floor covering
• finished fixtures such as door knobs, cabinet handles, interior light fixtures, ceiling fans, bath mirrors, towel racks, etc. Finished fixtures do not include faucets, bath tubs, sinks, cabinets, counter tops.
• All exterior work, including paint, should be completed at the time of appraisal except for those items affected by adverse weather conditions.

VA does not use or expect a percent complete metric in this decision. We will defer to the appraiser’s judgement on the breadth of remaining items and if they fall under “other equipment”. As mentioned, if the appraiser is preparing the appraisal report Subject to Repairs for remaining “customer preference items” Chapter 11 Topic 18 b. applies.

USPAP Compliance by the appraiser:

USPAP Standards Rule 1-2 (e) requires the appraiser to have reliable information to identify the characteristics of the property. Remaining customer preference items must be clearly identified by the appraiser. USPAP Standards Rule 2-2 (a) (iv) requires the appraisal report to contain sufficient information to identify the physical property characteristics relevant to the assignment. Compliance with USPAP compels the appraiser to report remaining customer preference items sufficiently to identify what is yet to be completed."

 

[Zoe]

Just ask builder to wait until it gets to buyer preference stage. You'll be fine. It needs to be real close. Ask agent or builder how far along it is. Keep your lender in loop. Like you will do subject to carpet or flooring installed or appliances or small things at customer preference. Like Sod or landscaping, etc. Do it subject to. Move on.

You have items like you know are required like an occupancy permit, utilities. Just do it subject to and a final inspection.

 

[RSW]

Just remember that VA does not have a % complete requirement. Buyer preference stage. The Atlanta RLC said a good rule of thumb is "If a CO can be issued, but it is not complete" then it is in the buyer preference stage.

 

[Tim Hicks (Texas)]

I went looking through my saved emails and found this from the Houston RLC from 2019:

V. PROPERTIES ELIGIBLE FOR APPRAISAL

1. EXISTING CONSTRUCTION Existing construction are dwellings that have been completed for at least one year, or those that have been previously occupied regardless of age.

2. NEW-EXISTING CONSTRUCTION New construction are dwellings that are less than a year old and have never been occupied. In order for an appraisal to be completed on new-existing construction, the house must be fully complete or complete up to the installation of customer/buyer preference items. Those items typically considered as customer preference items are: Kitchen appliances Floor covering Finished fixtures such as door knobs, cabinet handles, interior light fixtures, ceiling fans, bath mirrors, towel racks, etc. Finished fixtures do not include faucets, bath tubs, sinks, cabinets, counter tops. (toilet stools might be included in buyer preference items if the flooring has not been installed) Some interior paint/wallpaper Privacy fence and gates Landscaping (including sod). Grading is not a buyer preference item. It should be completed to insure that water is properly diverted away from the structure. Air conditioner compressors (this item is included for security purposes). All exterior work, including paint, should be completed at the time of appraisal except for those items affected by adverse weather conditions. It is the responsibility of the fee appraiser to determine if a property is eligible for appraisal (i.e. complete or complete to customer preference stage). If such a determination cannot be made through communication with the builder or lender, the appraiser must make a visual inspection. If it is determined the property is not eligible for appraisal, the appraiser should notify the lender that the appraisal cannot be completed and provide reason why. The lender should be requested to contact the appraiser when the dwelling reaches the stage of eligibility. The appraisal may be delayed for a period of 30 days without prior approval of the VA and the lender may be billed an inspection fee if a visual inspection was performed at the lender’s request. The appraisal report must be properly documented regarding the delay. If an extension past 30 days is required, VA staff must be contacted for approval.

3. PROPOSED/UNDER-CONSTRUCTION Dwellings where construction has not started or is under construction but not complete to the customer preference stage are considered proposed construction. A home may be appraised from plans and specifications or a model home (see 3a below). If appraised from plans and specs, the following exhibits are required: 11 Specifications on VA Form 26-1852, Description of Materials, signed and dated by the builder in all cases and by the veteran when one is under contract. (Other specification formats are acceptable provided they are signed and dated by the builder and veteran as described above and are sufficiently detailed for VA appraisal.) Plot plan which includes the location of the well/septic systems, if applicable. All exterior building elevations. Foundation or basement plan. Plan of all floors. Sectional Wall details. A certification signed and dated by a technically qualified and properly identified individual (such as, builder, architect, engineer, etc.) which states, “I certify that the construction exhibits for (identification of the property i.e. legal description or property address) meets all local code requirements and are in substantial conformity with VA Minimum Property Requirements.” VA will accept HUD Form 92541, Builder’s Certification of Plans, Specifications and Site, in lieu of this certification.

(3a) ADDITIONAL CERTIFICATION FOR PROPOSED CONSTRUCTION Provide the following additional certification with your appraisal for proposed construction: “I hereby certify that the information contained in the exhibits identified herein was used to arrive at the estimate of reasonable value noted in this report.” Identify the Plans_________________ Signature_________________

(3b) APPRAISAL OF PROPOSED OR UNDER CONSTRUCTION PROPERTIES FROM MODEL HOMES VA will allow “Proposed and Under Construction” properties to be appraised using an existing model home, in lieu of construction exhibits, if the model home is: Fully completed; The same plan type as the subject home; Located in the same market area; and Readily accessible to the assigned fee appraiser. In the “Comments” section at the bottom of page 1 of the URAR, the fee appraiser must insert the following statement: “Appraisal from Model Home. Value has been based on the inspection of a model home of the same plan type as the subject. Construction to be completed according to contract dated _________.

 

[RSW]

I went looking through my saved emails and found this from the Houston RLC from 2019:

V. PROPERTIES ELIGIBLE FOR APPRAISAL

1. EXISTING CONSTRUCTION Existing construction are dwellings that have been completed for at least one year, or those that have been previously occupied regardless of age.

2. NEW-EXISTING CONSTRUCTION New construction are dwellings that are less than a year old and have never been occupied. In order for an appraisal to be completed on new-existing construction, the house must be fully complete or complete up to the installation of customer/buyer preference items. Those items typically considered as customer preference items are: Kitchen appliances Floor covering Finished fixtures such as door knobs, cabinet handles, interior light fixtures, ceiling fans, bath mirrors, towel racks, etc. Finished fixtures do not include faucets, bath tubs, sinks, cabinets, counter tops. (toilet stools might be included in buyer preference items if the flooring has not been installed) Some interior paint/wallpaper Privacy fence and gates Landscaping (including sod). Grading is not a buyer preference item. It should be completed to insure that water is properly diverted away from the structure. Air conditioner compressors (this item is included for security purposes). All exterior work, including paint, should be completed at the time of appraisal except for those items affected by adverse weather conditions. It is the responsibility of the fee appraiser to determine if a property is eligible for appraisal (i.e. complete or complete to customer preference stage). If such a determination cannot be made through communication with the builder or lender, the appraiser must make a visual inspection. If it is determined the property is not eligible for appraisal, the appraiser should notify the lender that the appraisal cannot be completed and provide reason why. The lender should be requested to contact the appraiser when the dwelling reaches the stage of eligibility. The appraisal may be delayed for a period of 30 days without prior approval of the VA and the lender may be billed an inspection fee if a visual inspection was performed at the lender’s request. The appraisal report must be properly documented regarding the delay. If an extension past 30 days is required, VA staff must be contacted for approval.

3. PROPOSED/UNDER-CONSTRUCTION Dwellings where construction has not started or is under construction but not complete to the customer preference stage are considered proposed construction. A home may be appraised from plans and specifications or a model home (see 3a below). If appraised from plans and specs, the following exhibits are required: 11 Specifications on VA Form 26-1852, Description of Materials, signed and dated by the builder in all cases and by the veteran when one is under contract. (Other specification formats are acceptable provided they are signed and dated by the builder and veteran as described above and are sufficiently detailed for VA appraisal.) Plot plan which includes the location of the well/septic systems, if applicable. All exterior building elevations. Foundation or basement plan. Plan of all floors. Sectional Wall details. A certification signed and dated by a technically qualified and properly identified individual (such as, builder, architect, engineer, etc.) which states, “I certify that the construction exhibits for (identification of the property i.e. legal description or property address) meets all local code requirements and are in substantial conformity with VA Minimum Property Requirements.” VA will accept HUD Form 92541, Builder’s Certification of Plans, Specifications and Site, in lieu of this certification.

(3a) ADDITIONAL CERTIFICATION FOR PROPOSED CONSTRUCTION Provide the following additional certification with your appraisal for proposed construction: “I hereby certify that the information contained in the exhibits identified herein was used to arrive at the estimate of reasonable value noted in this report.” Identify the Plans_________________ Signature_________________

(3b) APPRAISAL OF PROPOSED OR UNDER CONSTRUCTION PROPERTIES FROM MODEL HOMES VA will allow “Proposed and Under Construction” properties to be appraised using an existing model home, in lieu of construction exhibits, if the model home is: Fully completed; The same plan type as the subject home; Located in the same market area; and Readily accessible to the assigned fee appraiser. In the “Comments” section at the bottom of page 1 of the URAR, the fee appraiser must insert the following statement: “Appraisal from Model Home. Value has been based on the inspection of a model home of the same plan type as the subject. Construction to be completed according to contract dated _________.

That is so much more clear than what is in the VA handbook. That is exactly how I have viewed the requirements. Some RLCs are more lenient than others.

 

[Gerry Sauceda]

I went looking through my saved emails and found this from the Houston RLC from 2019:

V. PROPERTIES ELIGIBLE FOR APPRAISAL

1. EXISTING CONSTRUCTION Existing construction are dwellings that have been completed for at least one year, or those that have been previously occupied regardless of age.

2. NEW-EXISTING CONSTRUCTION New construction are dwellings that are less than a year old and have never been occupied. In order for an appraisal to be completed on new-existing construction, the house must be fully complete or complete up to the installation of customer/buyer preference items. Those items typically considered as customer preference items are: Kitchen appliances Floor covering Finished fixtures such as door knobs, cabinet handles, interior light fixtures, ceiling fans, bath mirrors, towel racks, etc. Finished fixtures do not include faucets, bath tubs, sinks, cabinets, counter tops. (toilet stools might be included in buyer preference items if the flooring has not been installed) Some interior paint/wallpaper Privacy fence and gates Landscaping (including sod). Grading is not a buyer preference item. It should be completed to insure that water is properly diverted away from the structure. Air conditioner compressors (this item is included for security purposes). All exterior work, including paint, should be completed at the time of appraisal except for those items affected by adverse weather conditions. It is the responsibility of the fee appraiser to determine if a property is eligible for appraisal (i.e. complete or complete to customer preference stage). If such a determination cannot be made through communication with the builder or lender, the appraiser must make a visual inspection. If it is determined the property is not eligible for appraisal, the appraiser should notify the lender that the appraisal cannot be completed and provide reason why. The lender should be requested to contact the appraiser when the dwelling reaches the stage of eligibility. The appraisal may be delayed for a period of 30 days without prior approval of the VA and the lender may be billed an inspection fee if a visual inspection was performed at the lender’s request. The appraisal report must be properly documented regarding the delay. If an extension past 30 days is required, VA staff must be contacted for approval.

3. PROPOSED/UNDER-CONSTRUCTION Dwellings where construction has not started or is under construction but not complete to the customer preference stage are considered proposed construction. A home may be appraised from plans and specifications or a model home (see 3a below). If appraised from plans and specs, the following exhibits are required: 11 Specifications on VA Form 26-1852, Description of Materials, signed and dated by the builder in all cases and by the veteran when one is under contract. (Other specification formats are acceptable provided they are signed and dated by the builder and veteran as described above and are sufficiently detailed for VA appraisal.) Plot plan which includes the location of the well/septic systems, if applicable. All exterior building elevations. Foundation or basement plan. Plan of all floors. Sectional Wall details. A certification signed and dated by a technically qualified and properly identified individual (such as, builder, architect, engineer, etc.) which states, “I certify that the construction exhibits for (identification of the property i.e. legal description or property address) meets all local code requirements and are in substantial conformity with VA Minimum Property Requirements.” VA will accept HUD Form 92541, Builder’s Certification of Plans, Specifications and Site, in lieu of this certification.

(3a) ADDITIONAL CERTIFICATION FOR PROPOSED CONSTRUCTION Provide the following additional certification with your appraisal for proposed construction: “I hereby certify that the information contained in the exhibits identified herein was used to arrive at the estimate of reasonable value noted in this report.” Identify the Plans_________________ Signature_________________

(3b) APPRAISAL OF PROPOSED OR UNDER CONSTRUCTION PROPERTIES FROM MODEL HOMES VA will allow “Proposed and Under Construction” properties to be appraised using an existing model home, in lieu of construction exhibits, if the model home is: Fully completed; The same plan type as the subject home; Located in the same market area; and Readily accessible to the assigned fee appraiser. In the “Comments” section at the bottom of page 1 of the URAR, the fee appraiser must insert the following statement: “Appraisal from Model Home. Value has been based on the inspection of a model home of the same plan type as the subject. Construction to be completed according to contract dated _________.

Since I don't have this email - is it located on a newsletter where I can reference it?

 

[Gerry Sauceda]

The home is lacking bathroom counters / wainscot / sinks/ and HVAC compressor, so according to the definitions above, these are beyond the buyer's preference items.